You’ve done your research and you want to give crypto trading bots a try but where do you start from? Which type of trading bots should you go with? Are there differences between the different types of crypto trading bots? And what about the difficulty levels? Are they all as easy to use as they appear to be?
You’ve come to the right place—that’s what we will be discussing today. Let’s take a deeper look at the four most common types of crypto trading bots and which one may suit your needs and goals.
Before we go further, it’s important to understand that behind every trading bot, there is a pre-programmed strategy—artificial intelligence or algorithms, a set of parameters or rules, to help the bot determine the most opportunistic moments to execute buy and sell orders. These could range from volume, time frame and various other market conditions.
There are several types of algorithms and not all of them are suitable for everyone. Indeed, some algorithms are more recommended if you are just starting out in trading and especially so if you do not yet have complete control over your emotions.
In some cases, even by using trading bots, we do not completely eliminate the need to control our emotions. Often we have seen those who decide to take things into their own hands by cutting the algorithm, temporarily or permanently. In some cases, people may even take the extreme route of exiting the market, only to return later when the market shows strength. Unfortunately, the above is often executed at the worst moment—during times of panic and stress.
The lesson here? Even when you have decided to utilize trading bots to trade on your behalf, it is important to not let your emotions take over the control and coerce you into doing something which you might regret later on.
Next, there are trading bots that are reserved for investment funds, such as low-latency or high-frequency trading strategies, which rely on extremely fast execution, in the order of a thousandth of a second, to be profitable.
Given that there are so many trading bots in the market, here are the four most common types of crypto trading bots and how to use the.
This type of bot has a very simple operation which makes it a great bot for beginners. Indeed, DCA simply stands for “Dollars Cost Averaging”, which means, entering a position not in one go, but by spreading the entry points so as to have a lower average price.
DCA Bots are used to build longer term positions, to help you not miss that famous dip! This type of algorithm is beginner friendly, in the sense that it doesn’t strain your nerves, if you accept that you are more into investing and not short term trading.
Instead of monitoring the market every single moment for dips or opportunities to buy, the DCA Bots will help you execute the order without you having to lift a linger.
Here we enter a rather broad category of strategies, which apply for the most part to futures, even if we can have a mix between spot and futures strategies, be long spot and short futures for optimal hedging.
Long/short algorithms can take the form of a trend-following system, which will then aim to capture a direction and hold on to it as long as possible. This type of bots remains accessible for beginners, even if we are in a slightly less long-term perspective, and the expected drawdown can sometimes be quite high.
We can also find mean-reverting algorithms, which unlike trend-following, will rely on the assumption that after a bullish or bearish excess, prices will automatically tend towards their average. This type of strategy is rather contrarian and therefore more recommended for the more experienced.
This category of bots is reserved for more experienced users, as its design requires a more advanced knowledge of the mechanisms of trading platforms. As you know if you have already opened several trading platforms, the prices tend to be the same but there are differences.
An arbitrage bot will then use these differences to take advantage of them. In a deliberately simplified way, it will buy on one exchange to sell on another and pocket the difference.
Market making bots are again reserved for more experienced traders, and their goal is often to take advantage of a spread between the bid and ask price.
However, market making bots can be used to reduce this spread by bringing liquidity to the market, which is often the case on exchange platforms, or for a new crypto project. You can’t launch a project without securing the services of a market maker.
The above four most common types of crypto trading bots are the most popular amongst retail traders and investors of all levels, from beginner to advanced.
Once you have decided on the type of crypto trading bots to trade with, the next thing you will have to consider is your trading capital and diversification. It is worth mentioning that rule number one in trading and investing: only do so with your disposable income. In other words, it’s “money that you can afford to lose”. Next comes the part subject of diversification. Instead of having all your funds in one bot, it is wise to spread them across different bots with different risk levels. A good indication to gauge the risk levels is of course, the percentage of drawdown.
Next, consider the exchange that the crypto trading bots trade on. Given that Decentralized Finance (DeFi) is one of the hottest trends in finance and poised to grow even bigger in 2022 and beyond, finding crypto trading bots that trade on DeFi is definitely worth exploring, if you have not done so.
Superbots is a good place to start. Currently in beta version and six bots that trade exclusively on DeFi, the crypto trading bots are already showing signs of powerful performance. Its ETH Infinity bot made +30% in just February 2022 alone, closing the month with spectacular results. And the icing of the cake? There are no fees to pay when using the bots! You only pay a performance fee when the bots make profit.
With thousands of traders and investors already on board using the bots to trade, you don’t one to be the last or worse, get left behind! Join the Superbost adventure today and be part of DeFi. As Elon Musk’s famous tweet said “Don’t defy DeFi”.